Connecticut Lawyers - Sidebar
|
ENVIRONMENTAL
INSURANCE
As many of you have painfully discovered, environmental issues can kill
a deal faster than you can say "Petroleum Hydrocarbons." Environmental
insurance is gaining momentum as an alternative option to the
management of potential environmental liabilities that can affect
property owners and others who could be impacted by potential
environmental contamination. Environmental insurance is also being used
as a tool to help expedite transfers of real property.
What Is Environmental Insurance?
Environmental insurance generally covers the three major areas of
liability to which environmental businesses, property owners or lenders
may be exposed. These areas of liability are usually excluded from
standard insurance policies. First, environmental insurance provides
coverage for bodily injury and property damage caused by pollution on
the property, Second, coverage is provided for damages caused by
professionals who are contracted to perform work on the site; and
third, coverage is provided for the release of pollutants as a result
of ongoing work operations at a site.
What Are the Different Types of Environmental
Insurance?
The types of insurance that are available are dependent upon whether
the insurance is being obtained to facilitate a transfer of property,
protect a current property owner from potential environmental
liability, or insure an environmental consultant or contractor. For
example, in real estate transactions a seller or buyer may obtain
coverage prior to transfer. This would help alleviate concerns related
to potential contamination of the site and help the transaction process
proceed more smoothly. Lending institutions and parties to leases may
also benefit from environmental insurance as could fiduciaries of
trusts which own or operate real property. Likewise, an environmental
contractor may obtain insurance to cover many of the inherent risks of
their business, including excavation of contaminated soil or
underground storage tank installation or removal.
Why Obtain Environmental Insurance?
The primary reason to obtain environmental insurance is to mitigate the
potential amount that might need to be spent on environmental hazards.
Environmental insurance can, however, provide additional benefits, such
as reducing the nature and cost of environmental studies and
accelerating the financing process.
|
STOCK
PURCHASE TRANSACTION MAY BE CONSTRUCTIVE FRAUD
A transfer of stock for less than the reasonably equivalent value may
be avoided as a fraudulent transfer. In most states avoidance of
fraudulent transfers is governed by the Uniform Fraudulent Transfer
Act. The Uniform Fraudulent Transfer Act and similar laws are intended
to protect the debtor's creditors.
A Transfer can be deemed fraudulent as a result of
either Actual Fraud or Constructive Fraud. A Transferor engages in
Actual Fraud by transferring property with the actual intent to hinder,
delay or defraud a creditor. A Transferor engages in Constructive Fraud
by transferring property without receiving reasonably equivalent value
in exchange at a time that the transfer rendered the Transferor unable
to pay its obligations as they come due.
The determination of what is "reasonably equivalent
value" is dependent on the "totality of the circumstances" at the
time of the transaction. The totality of the circumstances includes the
good faith of the parties, the fair market value compared to the price
paid and whether the transaction was at arm's length.
For example, weekly payments from a husband to his wife
have been held to be avoidable as fraudulent transfers under the theory
of Constructive Fraud despite the claim that fair consideration was
exchanged by virtue of the wife providing household and marital
services. The Court made note of the fact that the wife did not provide
a specific accounting of the services provided and found that the
services were of the nature of those naturally and traditionally
exchanged between spouses without consideration. We can only speculate
as to what the Court would have done had an accounting for the
"marital" services been provided.
Recently, a Connecticut telephone company sold its stock
to another company doing business in Delaware. Within a year of the
purchase of the stock, the Delaware corporation filed for bankruptcy.
The trustee attempted to avoid the transaction because the debtor did
not receive the "reasonably equivalent value" in exchange. In
considering whether the transfer constituted Constructive Fraud the
court looked at the Totality of the Circumstances including: The
debtor's knowledge of the relevant facts, the debtor's knowledge of the
market, the debtor's own market research, prior comparable transactions
in the field, market studies and the history of the negotiations. Based
on these factors, the Court found that the stock was exchanged for
reasonably equivalent value and that the transfer could not be avoided
as a fraudulent transfer.
Those involved in transfers that may later be subject to
attack by a creditor of the Transferor should consider appraisals or
fairness opinions to help insulate transactions.
|
CYBERSQUATTING
A small partnership whose sole line of business appears to have been
registration of hundreds of Internet domain names registered an
Internet address name that was virtually identical to the name of a
famous winery. When the winery got nowhere with demands that the domain
name be released or transferred to it, it sued under the federal
Anticybersquatting Consumer Protection Act (ACPA). Cybersquatting is
the registration of a domain name of a well-known trademark by someone
who does not hold the trademark but hopes to profit from selling the
name back to the trademark owner.
Unfazed by the lawsuit, the partnership went on the
offensive. On a website that used the name in dispute, the defendant
published under the heading "Whiney Winery" a discussion of the lawsuit
and an attack on the winery and corporations generally. This online
response to being sued was the first and only time that the registrant
of the disputed domain name actually used it.
A federal court awarded a judgment to the winery under
the ACPA. There was no question that the winery had a valid trademark
that was famous and distinctive, and that the domain name registered by
the defendant was identical or confusingly similar to the mark. The
defense rested instead on the contention that the partnership did not
have the bad-faith intent to profit from another's mark, as is required
for liability under the ACPA.
The court weighed various factors that go into deciding
if "bad-faith intent to profit" is shown, and the partnership did not
fare well. When it registered the domain name, it had no intellectual
property rights in the name, and it never had used the name in a
legitimate offering of goods or services. Although it had not yet
offered to sell the domain name to the winery, it had made such offers
to sell names to other trademark owners, generally accepting no less
than $10,000 per name. The partners admitted that they hoped the winery
eventually would contact them so that they could "assist" the winery in
some way. The icing on the cake in establishing bad faith was the
hosting of a website and using the winery's trademarked name as a forum
for attacking the winery's goodwill and tarnishing its trademark.
|
| JOINT BANK ACCOUNTS
An elderly doctor and his daughter opened a joint bank
account, the money in which would go to the surviving account holder if
the other one died. Nine years later, when the doctor was in declining
health, his wife asked to be added to the account so that she could pay
bills. Based on the signatures of the doctor and his wife, but not the
daughter, the bank added the wife to the account. Over a one-month
period, the wife then wrote many checks on the account, totalling over
$100,000. The biggest check, for $75,000, was written, cashed, and
deposited to the wife's own account on the very day her husband
died.
The daughter sued the bank, claiming it was liable to
her for recognizing a new party to the joint account without the
consent of all parties to the account. A state supreme court sided with
the bank. First, the documents that comprised the contract between the
bank and the account holders included a statement that each owner was
the agent of any other owners for purposes of endorsements, deposits,
withdrawals, and conducting business for the account. This language was
broad enough to give the doctor power to add his wife as a new party to
the account without his daughter's knowledge or consent. Second, a
statute on joint accounts similarly made each party to an account the
agent for other account holders, although the statute was silent on the
method for adding a new party to an account. The bank had not breached
its contract when it recognized the doctor's wife as a new party to the
account based solely on the doctor's signature.
This decision highlights the pitfalls that can accompany
joint bank accounts. Allowing each party to a joint account to exercise
full authority over the account is flexible and convenient, but the
cost of these advantages is loss of control. The exposure to this risk
is widespread, as joint account contracts typically have language like
that used in the case of the doctor and his daughter.
Alternative methods for managing money make it more
difficult for any individual to raid accounts to the detriment of
co-owners. These include powers of attorney, revocable living trusts,
and "agency" or "convenience" accounts that resemble general powers of
attorney but are confined to specific bank accounts. Advice of legal
counsel should be sought before deciding which of these or other
options is most appropriate in a specific situation.
|
TAX CREDITS FOR HISTORIC PRESERVATION
For over 25 years the federal Government has been using tax incentives
to help preserve historic buildings. Originally, federal law allowed
accelerated depreciation on rehabilitated buildings, but subsequent
changes have made preservation and revitalization efforts even more
attractive to taxpayers. Today, there is a general business credit
equal to 20% of qualified rehabilitation expenses for a certified
historic structure, or a 10% tax credit for the qualified
rehabilitation of non historic, non-residential buildings first placed
into service before 1936. Eligibility for the tax incentives is
determined by the National Park Service. Tax credits are often more
beneficial to taxpayers than deductions, since every dollar of a tax
credit reduces the amount of income tax owed by one dollar.
The 20% credit for the rehabilitation of a certified
historic structure applies to commercial, industrial, agricultural,
rental, or residential properties, but not properties used exclusively
as the owner's private residence. A certified historic structure must
be a building, as opposed to another type of structure. To have the
required historic status, the building must be either listed
individually in the National Register of Historic Places or located in
a registered historic district and certified as being of historic
significance to the district.
Eligibility for the 20% credit also depends on meeting
some additional requirements. For example, the building must be
depreciable, that is, used in a trade or business or held to produce
income. The rehabilitation must be substantial, generally defined as
entailing expenditures over a two-year period exceeding the greater of
$5,000 or the adjusted basis of the building and its structural
components. Qualified rehabilitation expenses include such items as
architectural and engineering fees, site survey and development fees,
legal expenses, and other construction-related costs, so long as they
are added to the basis of the property, are reasonable, and are related
to services performed.
The owner of the rehabilitated building must hold it for
five years after completion of the rehabilitation, or pay back all or
part of the 20% credit. A sale in the first year means that the entire
credit is recaptured. The recapture amount is reduced by 20% per year
for properties held between one and five years.
The 10% credit for non historic buildings constructed
before 1936 shares some of the requirements for the 20% credit, such as
that the rehabilitation be substantial and the property be depreciable.
However, only buildings rehabilitated for non-residential uses qualify
for the 10% credit. In addition, so that the identity of the original
building is not lost in the process, projects undertaken for the 10%
credit must meet specific tests based on retention of minimum
percentages of the building's walls and internal structural
framework.
|
LOST
HEALTH-CARE COVERAGE
Shortly after he was fired from his job, Monty got married and left
town for a three-week honeymoon. While he was away, his former employer
sent him a notice about his right under a federal law, called COBRA for
short, to elect to continue his health-care insurance coverage. COBRA
requires that such a written notice be provided within 14 days of a
termination from employment, but neither the statute nor regulations
spell out what adequate notice entails.
In Monty's case, he never got the notice, which was sent
by certified mail, return receipt requested. When Monty went to the
post office to claim the letter, postal workers could not find it.
Eventually, the COBRA notice was found, but then it was returned to the
sender with an erroneous indication that Monty never claimed it. By
that time, Monty had begun a new job and was receiving treatment for a
new medical condition. His new employer's insurer denied coverage for
this treatment as a pre-existing condition. That left Monty without
coverage for significant medical expense
Monty was unsuccessful when he sued his former employer
under the Employment Retirement Income Security Act (ERISA) on the
ground that it had not given him the required written notice about
COBRA insurance coverage. Although it was through no fault of his own
that Monty never received the notice, his former employer had made a
good-faith attempt to get the written notice to him, and that was all
that the law requires. The employer used certified mail, which is
designed to enhance the prospects for an individual's receipt of
delivery, and it was not responsible for the letter going
undelivered.
|
|
